It appears likely that the European Union (EU) will revoke Cambodia’s tariff free access to its markets. This will place downward pressure on the country’s critical garment sector. The EU’s approach to Cambodia reflects concern over Prime Minister Hun Sen’s authoritarian tendencies, and will contribute to a growing reliance on Chinese financing and trade.
Security risks are moderate in Cambodia. There are no known terrorist groups operating in the country, and Cambodia is unlikely to be a priority target for transnational actors.
Despite some unresolved border issues with neighbouring Thailand, the likelihood of a full military conflict is low.
Cambodian workers are able to organise freely, but labour unions are poorly coordinated and fragmented. This ensures that the risk of strike activity remains localised. Any strikes typically last a few days.
Prime Minister Hun Sen’s strategy for governing elevates political risks.
In recent years, Hun Sen has consolidated power around himself. The ruling Cambodian People’s Party (CPP) secured 123 of parliament’s 125 seats in the July 2018 general election.
The government dissolved the opposition Cambodia National Rescue Party (CNRP) in November 2017.
It has also pursued action against the media and civic society. Many CNRP leaders are in self-imposed exile abroad, while those that remain in the country may look to organise demonstrations.
Hun Sen maintains a tight hold on power, and any protests are likely to be met with a robust response from security forces.
Tear gas may be deployed to disrupt protests. This will increase death and injury risks.
Economic growth in Cambodia is forecasted to slow to 5.9% in 2019, as the country struggles to reduce its reliance on the garment sector.
Rising import, power and labour costs have all weakened the garment sector’s competitiveness.
Risks to the sector’s performance have risen following the EU’s decision to review Cambodia’s preferential access to European markets.
Under an ‘Everything but Arms’ (EBA) agreement with the EU, Cambodian products benefit from tariff-free access to EU markets.
However, this agreement was placed under review for 12 months in October 2018. A decision to retract tariff-free trade would not be implemented until April 2020.
However, firms may act pre-emptively by moving manufacturing operations outside of Cambodia.
It is estimated that a suspension to the agreement would cost Cambodia USD 676 million in tariffs. 12.5% of the population are also believed to be dependent on the industry for income.
The EU imported 46% of Cambodia’s textiles and clothing goods in 2016. The country will struggle to substitute this demand with alternative trading partners.
China accounts for the vast majority of investment in Cambodia. It did not join major global players in criticising Cambodia’s 2018 election.
In January 2019, China promised to expand trade volumes with Cambodia to USD 10 billion by 2023. It also pledged USD 600 million in grants.
Reports have suggested that China is building a naval base in Koh Kong province.
Cambodia is reportedly making constitutional amendments to allow for such an investment.
Healthcare is a sector of strategic importance to the Cambodian government.
Healthcare expenditure is expected to reach USD 1.5 billion by 2022, up from USD 1.2 billion in 2017.
However, government provision is more limited. Private health spending accounted for USD 875 million of spending in 2017.
The healthcare system remains underdeveloped, and government action on developing a public healthcare system will take many years to materialise.
As part of the 10-year National Social Protection Strategy, a universal healthcare scheme is scheduled to be in place by 2025.
However, the sustainability of such a model will be questioned. Cambodia remains reliant on foreign aid to fund spending.
This is unlikely to be sufficient to fund a public healthcare system in the long-term.
The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.
5 Key Takeaways
- The competitiveness of Cambodia’s critical garment sector is weakening
- Prime Minister Hun Sen demonstrates a tendency toward authoritarian rule, elevating political risks
- The EU is reviewing Cambodia’s preferential access to European markets, elevating economic risks
- Cambodia’s trade and investment relationship with China is deepening
- The healthcare sector is an area of strategic importance, as the current system of provision is underdeveloped.
In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Argentina, Cameroon, Oman and Zimbabwe all of which have been the subject of recent enquiries from JLT's client base.
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For further information, please contact Eleanor Smith, Senior Political Risk Analyst on +44 (0)121 626 7837 or email email@example.com